Hospital Consolidations Driven by Bargaining Power Do Not Lead to Integration

Monday, July 09, 2012

Hospital Consolidations Driven by Bargaining Power Do Not Lead to Integration

Physician-hospital consolidation for the purpose of enhanced bargaining power with payers does not lead to true integration or enhanced hospital performance, according to an updated issue brief by the Robert Wood Johnson Foundation (RWJF) that examines the effect of hospital mergers on prices, costs, and quality of care.

Consolidation between physicians and hospitals is of great interest because of both the potential that consolidation has for creating integration, and the impetus created by the Affordable Care Act's push toward creating accountable care organizations and emphasis on bundled payments. In theory, says the brief, there are substantial gains to be made from consolidation—especially when consolidation leads to integration and the elimination of unnecessary duplication of services.

However, the brief also points to concerns that consolidation may have adverse impacts on competition. Hospital consolidation generally results in higher prices. When hospitals merge in already concentrated markets, the price increase can be dramatic, often exceeding 20%.

Additionally, hospital competition improves quality of care. This is true under both administered price systems such as Medicare and the United Kingdom's National Health Service, and market-determined pricing such as the private health insurance market.

The full 2006 synthesis and updated brief are available on RWJF's website.